ZENJOY LTD v. CONTEX GROUP CO., LTD

HCA 1339/2019

[2019] HKCFI 2558

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1339 OF 2019

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DECISION

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1.  This case concerns an appeal against the decision of a master, by which the master dismissed the plaintiff’s third party discovery application.

2.  The plaintiff had filed its Statement of Claim in these proceedings on 24 July 2019.  This was followed two days later by the subject discovery application, wherein the plaintiff applied for discovery against a non- party to the main action namely, The Hong Kong and Shanghai Banking Corporation Limited (“HSBC”).  The discovery orders sought related to an allegedly fraudulently induced transfer of US$539,261.39; a case of email fraud.  The orders sought were directed towards HSBC providing all documents in its possession, custody or power relating to the alleged fraud (draft orders (1) and (2)). In addition, the plaintiff sought an order that pending compliance with its obligations to hand over the documents, HSBC be restrained from parting with the possession of or destroying or manipulating or amending or deleting or removing any of the documents (draft order (5)).  During the hearing, we referred to this order as the “restraint order”.

3.  In his reasons for decision dated 22 August 2019, Master Lai dismissed the plaintiff’s discovery application.  By its notice of appeal dated 23 August 2019, that decision was appealed.

4.  While it is accepted that an appeal from the decision of a master to a judge in chambers is dealt with by way of a rehearing (Hong Kong CivilProcedure 2019, §58/1/2), it is convenient to begin with an assessment of how the learned master arrived at his decision to decline the relief sought by the plaintiff. 

Legal context

5.  In his reasons for decision handed down on 22 August 2019, the learned master referred to the following provisions (set out in full for convenience):

(a)  Section 42(1) of the High Court Ordinance:

“(1)  On the application, in accordance with rules of court, of a party to any proceedings in which a claim is made, the Court of First Instance shall, in such circumstances as may be specified in the rules, have power to order a person who is not a party to the proceedings and who appears to the Court of First Instance to be likely to have or to have had in his possession, custody or power any documents which are relevant to an issue arising out of that claim—

(a)  to disclose whether those documents are in his possession, custody or power; and

(b)  to produce such of those documents as are in his possession, custody or power to the applicant or, on such conditions as may be specified in the order—

(i)    to the applicant’s legal advisers;

(ii)   to the applicant’s legal advisers and any medical or other professional adviser of the applicant; or

(iii)   if the applicant has no legal adviser, to any medical or other professional adviser of the applicant.”

(b)  Order 24, rules 7A and 8(2) of the RHC:

“7A. Application under section 41 or 42(1) of the Ordinance (O. 24,r. 7A)

(1)  An application for an order under section 41 of the Ordinance for the disclosure of documents before the commencement of proceedings shall be made by originating summons (in Form No. 10 in Appendix A) and the person against whom the order is sought shall be made defendant to the summons.

(2)  An application after the commencement of proceedings for an order under section 42(1) of the Ordinance for the disclosure of documents by a person who is not a party to the proceedings shall be made by summons, which must be served on that person personally and on every party to the proceedings other than the applicant.

(3)  A summons under paragraph (1) or (2) shall be supported by an affidavit which must—

(a)  in the case of a summons under paragraph (1), state the grounds on which it is alleged that the applicant and the person against whom the order is sought are likely to be parties to subsequent proceedings in the Court of First Instance;

(b)  in any case, specify or describe the documents in respect of which the order is sought and show, if practicable by reference to any pleading served or intended to be served in the proceedings, that the documents are relevant to an issue arising or likely to arise in the proceedings and that the person against whom the order is sought is likely to have or have had them in his possession, custody or power.

(3A)  In the case of a summons under paragraph (1), paragraph (3)(b) shall be construed as if for the word ‘relevant’, there were substituted the words ‘directly relevant (within the meaning of section 41 of the Ordinance)’.

(4)  A copy of the supporting affidavit shall be served with the summons on every person on whom the summons is required to be served.

(5)  An order under section 41 or 42(1) for the disclosure of documents may be made conditional on the applicant’s giving security for the costs of the person against whom it is made or on such other terms, if any, as the Court thinks just, and shall require the person against whom the order is made to make an affidavit stating whether any documents specified or described in the order are, or at any time have been, in his possession,custody or power and, if not then in his possession, custody or power, when he parted with them and what has become of them.

(6)  No person shall be compelled by virtue of such an order to produce any documents which he could not be compelled to produce—

(a)  in the case of a summons under paragraph (1), if the subsequent proceedings had already been begun; or

(b)  in the case of a summons under paragraph (2), if he had been served with a writ of subpoena duces tecum to produce the documents at the trial.

(7)  (Repealed L.N. 152 of 2008)

(8)   For the purposes of rules 10 and 11 an application for an order under section 41 or 42(1) shall be treated as a cause or matter between the applicant and the person against whom the order is sought.”

“ 8. Discovery to be ordered only if necessary (O. 24, r. 8)

...

(2)  No order for the disclosure of documents shall be made under section 41 or 42 of the Ordinance, unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.”

6.  The underlining in the above cited provisions is my own.

Master’s decision

7.  The learned master began by summarizing the nature of the email fraud allegedly suffered by the plaintiff in March of 2019.  Thereafter, the master set out the relief sought by plaintiff in its Statement of Claim (as filed on 24 July 2019), namely:

(a)  A declaration that the sums lost (and their traceable proceeds) at all times remained the plaintiff’s property and were constructively held by the defendant (who has taken no part in the proceedings) as its constructive trustee).

(b)  A declaration that the defendant has been unjustly enriched in that sum.

(c)  Monies had and received in the amount of the sums lost.

(d)  Damages, interest and costs.

8.  I would pause here to note that an unusual feature of this case is that the underlying recovery proceedings launched by the plaintiff (as above) were not coupled with what might be described as the “usual” injunctive or third party discovery applications, directed towards the identification, freezing and recovering of sums lost.   This array of potential “weapons” for a party suffering from a fraud of this type includes (at least) the following:

(a)  Mareva injunctions[1], directed towards stopping a wrongdoer from removing his assets from the jurisdiction.  While there are established conditions that must be met for such relief to be granted, when such relief is given, the injunction can be served not just on the wrongdoer whose assets are to be frozen but also on third parties (eg banks) which the plaintiff believes may hold the wrong doer’s assets.  

(b)  Third party discovery applications which can be made (again subject to established conditions), either by way of Norwich Pharmacal applications[2] or by applications under section 21 of the Evidence Ordinance (cap.8).   

9.  The absence of an application for Mareva relief in this case was commented upon by the learned master in his decision and is, I believe, relevant to the way that this matter falls to be assessed.  

10.  Returning to the masters’ decision, the learned master noted that the defendant did not acknowledge service and while the plaintiff is now be entitled to seek default judgment, it has not done so.  Instead, the defendant seeks discovery orders in the context of this action, albeit that the “contest” between the plaintiff and defendant never really got underway.

11.  HSBC for its part, was neutral as to the plaintiff’s discovery application, saying that it would comply with any order made by the court.

12.  In the plaintiff’s submissions before the master, plaintiff’s counsel, Mr Keith Tam, submitted that the test of relevance for the purposes of HCO section 42(1) and related provisions of Order 24 was as set out in the Peruvian Guano case[3] and that there was no different or higher test for the plaintiff to meet.  The master (as recorded in his decision, at §32) queried what the issue was that arose from the plaintiff’s claim when, as here, the defendant was not defending or disputing the plaintiff’s claim.  Although the learned master did not put it in these words, the import of his concern here seems to me to be “why is the court asked to give relief in this case when the case is effectively already finished?”

13.  After a short adjournment to give the plaintiff time to consider this question, the plaintiff made reference to the decision of DHCJ Lok (as he then was) in Waddington Ltd v Chan Chun Hoo Thomas and Others (unrep. HCA 3291/2013).  The plaintiff maintained its position that the threshold for third party discovery in the present situation was as set out in  Peruvian Guano - in the plaintiff’s submission, an easy threshold to establish.

14.  Mr Tam also emphasized that part of the relief sought by the plaintiff was a proprietary claim.  The plaintiff relied here on the authority of Pacific King Shipping Holdings Pte Ltd  (in Compulsory Liquidation) (A Company Incorporated in Singapore) v Huang Ziqiang [2015] 1 HKLRD 830.          

15.  The learned master declined to grant the third party discovery and restraint orders as sought by the plaintiff.  His reasoning, in a nutshell, was as follows:

(a)  In the absence of a defence or dispute from the defendant, what are the issues arising or likely to arise in this action? Absent such “live” issues, the threshold requirement of there being documents that go to “an issue arising from the claim” is not met.    The master was persuaded in this context that the absence of a co-existing application for Mareva injunctive relief was problematic for the plaintiff.  The master was not satisfied that third party discovery in this case was “necessary” as per Order 24 rule 8(2).  

(b)  The restraint order was declined for a different reason.  The learned master took the view that the provisions relied upon by the plaintiff did not allow the proposed restraint order to be made against a non-party (decision, §79/80).      

16.  This then, is the reasoning of the learned master, from which the plaintiff has appealed.

Plaintiff’s appeal submissions

17.  At the hearing of this matter before me, I had the benefit of written submissions from Mr Tam, appearing again for the plaintiff.  I have considered those submissions which of course, he took me to in the course of his submissions.

I shall now turn to a discussion and decision on the application for third party discovery and for a restraint order.

Third party discovery

18.  The starting point for this inquiry is the wording of the provisions that are cited at §5 herein.

19.  Starting with HCO section 42, the power under this section to make third party discovery orders is clearly discretionary. And they key requirement for present purposes is the existence of documents “which are relevant to an issue arising out of the  claim”.  “Claim” for the purposes of this case is the plaintiff’s claim against the defendant.  This must be so, since there are no other parties to the underlying action.;

20.  Order 24, rule 7A(3)(b), which sets out the requirements for the supporting affidavit in applications made under HCO section 41 and 42, provides that documents should be shown to be “relevant to an issue arising or likely to arise in the proceedings”.

21.  The slight difference between HCO section 42(1) and Order 24, rule 7A(3)(b) can be seen to arise from the fact that the latter is directed towards the required content of affidavits both prior to and after the commencement of proceedings.  I do not see the differences in the language of HCO section 42(1) and Order 24, rule 7A(3)(b) as being significant.

22.  We turn then to the wording of Order 24 rule 8(2).  Here, there is an overarching and mandatory restriction that no orders are to be made under HCO sections 42 or 43 unless the Court is of opinion that the order is “necessary either for disposing fairly of the cause or matter or for saving costs.”  I note that while HCO section 42 refers to “claims”, whereas Order 24 rule 8(2) refers to the “cause or matter”.  But I again, I do not think anything turns on that difference in language.  In either case, the reference is to the claims and proceedings between the plaintiff and the defendant.   

23.  Put simply, meeting at least one of the necessity criteria as laid out in Order 24 rule 8(2) is mandatory for any third party discovery sought under HCO sections 41 and 42.  Here, one might simply refer to the observation of G Lam J in Zhang Shouen v Standard Chartered Bank (Hong Kong) Ltd (unrep., HCMP 682/2015, [2015] HKEC 2170) that where the test of necessity is met, the discretion “is an unfettered one to be exercised in all the circumstances of the case” (see decision, §22).

24.  Finally, there is the question of burden of proof under Order 24, rule 8(2).  For this, I refer again to the decision of G Lam J in the Zhang Shouen case (supra), where it was held that this provision “places the burden squarely on the applicant to satisfy the court that the order is necessary in the manner described, not only that the document is relevant or that discovery is desirable” (decision, §32).

25.  For this case, things come down to this question: is the third party discovery relief sought by the plaintiff necessary, either:

(a)  to dispose of the plaintiff’s claim (and proceedings) against the defendant; or

(b)  to save costs.  

both being subject to the court’s discretion, and with the burden of proof on the plaintiff.

26.  In my assessment, the requested third party discovery is not necessary to dispose of the plaintiff’s claim as against the defendant.  The plaintiff is already entitled to default judgement and there is really nothing more that it can achieve in these proceedings vis-à-vis the defendant.  There being no other parties to these proceedings, I cannot see how the requested third party discovery relief helps the plaintiff as regards the claim (and proceedings) against the defendant.  The application, in my view is speculative, given the current pleadings - and parties - in this action.   

27.  It seems apparent that the better course for the plaintiff would have been to combine the present proceedings with Norwich Pharmacal or Evidence Ordinance applications as those applications formally bring third parties into the arena – and of course there are conditions and discretions that must be tested and applied, before such relief is granted. But in a contest between the plaintiff and defendant only, without parallel applications of this type, I am not persuaded that the third party discovery sought is necessary to dispose of the plaintiff’s claim (and proceedings) against the defendant.     

28.  From the language of G Lam J in the Zhang Shouen case (supra), where it was held that Order 24, rule 8(2) places the burden squarely on the applicant to satisfy the court that the order is necessary in the manner described, my conclusion is that the plaintiff falls at this hurdle.  While the documents sought may be relevant and discovery desirable, that, of itself, is not enough to discharge the burden of proof faced by the plaintiff.

29.  Thus, in the exercise my discretion under Order 24, rule 8(2), I would decline the relief sought by the plaintiff. 

30.  Even if it could be said the application were necessary to save costs (which I doubt to be so), I would decline the discovery application under the second limb of Order 24, rule 8(2), for the same reasons.

Restraint Order

31.  Similarly, I see no reason to grant the restraint order sought by the plaintiff.

32.  Accordingly, the plaintiff’s appeal against the decision of Master Lai is dismissed.  As there were no applications for costs before me, I make no order as to costs.

HCA 1339/2019

[2019] HKCFI 2049

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1339 OF 2019

________________________

_________________________________

REASONS FOR DECISION

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Introduction

1.  This is an application for non-party discovery by the plaintiff against the third party (the “Application”) under section 42(1) of the High Court Ordinance (Cap 4) (the “Ordinance”) and order 24 rule 7A of the Rules of High Court (the “RHC”). 

2.  I had at the hearing on 12 August 2019 dismissed the Application.  I said that I should give reasons for my aforesaid decision in due course.  I set out below my reasons for my aforesaid decision. 

Background

3.  The plaintiff’s case is that it is a victim of email fraud. 

4.  The plaintiff owed a loan to a British Virgin Islands company (the “BVI Co”) control by a Hong Kong-based financial institution (the “Lender”).  There was a pending interest payment on the aforesaid loan due by the end of March 2019 from the plaintiff to the Lender in the sum of US$539,261.39 (the “Sum”).  

5.  On 18 March 2019, the plaintiff received an email (the “1^st email”) from the Lender requesting the plaintiff to pay the Sum to an account of the BVI Co. 

6.  Later on the same day, the plaintiff received another email (the “2^nd email”) purportedly from the Lender instructing the plaintiff to ignore the 1^st email and to pay the Sum to the defendant’s account (the “D’s Account”) held with the third party. 

7.  On 27 March 2019, the plaintiff paid the Sum to the D’s Account. 

8.  On 29 March 2019, the Lender informed the plaintiff that the BVI Co had not received the Sum.  The Lender also informed the plaintiff that the 2^nd email was not sent by the Lender. 

9.  On 24 July 2019, the plaintiff commenced this action against the defendant claiming that the defendant held the Sum on constructive trust in favour of the plaintiff; alternatively, the defendant was unjustly enriched by mistake in the amount of the Sum at the expenses of the plaintiff. 

10.  The plaintiff claims:

(1)   a declaration that the Sum and its traceable proceeds at all times remains the plaintiff’s property and was received and held by the defendant as its constructive trustee;

(2)   a declaration that the defendant has been unjustly enriched in that Sum;

(3)   monies had and received in the amount of the Sum;

(4)   damages, interest and costs.

11.  According to the affirmation of service filed herein by the plaintiff on 7 August 2019, the writ had been served to the defendant on 24 July 2019 by leaving the same at the registered office of the defendant.  The deadline for the defendant to file acknowledgment of service to give notice of intention to defend under order 12 rule 1 of the RHC expired on 6 August 2019.  No acknowledgment of service had been filed by the defendant as at 7 or 12 August 2019, ie the dates of hearing of the Application before me. 

The Application

12.  On 26 July 2019, the plaintiff issued the summons (the “Summons”) for the Application. 

13.  In the Application, the plaintiff seeks an order for the third party to disclose and provide to the plaintiff documents relating to all bank accounts of and connected with the defendant with the third party in particular the D’s Account. 

14.  The plaintiff also seeks discovery of the following documents relating to the D’s Account for the period from 26 March 2019 to the date of service of the order on the third party: 

(1)   payments into and out of the D’s Account;

(2)   the source and destination of all payments into and out of the D’s Account;

(3)   the person or persons giving instructions for all transactions on the D’s Account;

(4)   the identity of the persons authorized to give instructions on behalf of the D’s account; and

(5)   the opening of the D’s account and the mandates.

15.  The plaintiff also seeks an order restraining the third party (whether by itself, its directors, officers, employees, servants or agents or any of them or otherwise howsoever) from parting with possession of or destroying or mutilating or amending or deleting or removing any of the documents referred to in the Application (the “Restrain Order”). 

16.  The plaintiff also seeks leave to use the documents and records obtained from the Application for the purpose of commencing and pursuing new civil and criminal legal proceedings or pursuing existing legal proceedings, whether in Hong Kong or elsewhere, against such persons implicated in any wrongdoings as revealed upon the carrying out of such investigation. 

17.  The plaintiff relies on section 42(1) of the Ordinance and order 24 rule 7A of the RHC for the Application. 

18.  Section 42(1) of the Ordinance provides that:

“(1) On the application, in accordance with rules of court, of a party to any proceedings in which a claim is made, the Court of First Instance shall, in such circumstances as may be specified in the rules, have power to order a person who is not a party to the proceedings and who appears to the Court of First Instance to be likely to have or to have had in his possession, custody or power any documents which are relevant to an issue arising out of that claim―

(a) to disclose whether those documents are in his possession, custody or power; and

(b) to produce such of those documents as are in his possession, custody or power to the applicant or, on such conditions as may be specified in the order―

(i) to the applicant’s legal advisers;

(ii) to the applicant’s legal advisers and any medical or other professional adviser of the applicant; or

(iii) if the applicant has no legal adviser, to any medical or other professional adviser of the applicant.”  

19.  Order 24 rule 7A (1) to (3) of the RHC provides that:

“(1) An application for an order under section 41 of the Ordinance [which does not concern the Application] … …

(2) An application after the commencement of proceedings for an order under section 42(1) of the Ordinance for the disclosure of documents by a person who is not a party to the proceedings shall be made by summons, which must be served on that person personally and on every party to the proceedings other than the applicant.

(3) A summons under paragraph (1) or (2) shall be supported by an affidavit which must―

(a) in the case of a summons under paragraph (1) [which does not concern the Application] … …;

(b) in any case, specify or describe the documents in respect of which the order is sought and show, if practicable by reference to any pleading served or intended to be served in the proceedings, that the documents are relevant to an issue arising or likely to arise in the proceedings and that the person against whom the order is sought is likely to have or have had them in his possession, custody or power.”

20.  Order 24 rule 8(2) of the RHC further provides that:

“(2) No order for the disclosure of documents shall be made under section 41 or 42 of the Ordinance, unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.”

The plaintiff’s case

21.  The plaintiff filed an affirmation of Wu Xiaobin on 29 July 2019 (the “Affirmation”) in support of the Application. 

22.  The Affirmation reiterated the plaintiff’s case as pleaded in the statement of claim and produced copies of documents referred to in the statement of claim.  Mr Wu also provided more details on discovery of the alleged fraud. 

23.  Mr Wu stated in the Affirmation that:

“35. I have been advised by my legal advisers and I verily believe that the Discovery Order [sought in the Application] is sought as a means to obtain as much information as possible from the Third Party which would enable the Plaintiff to identify the wrongdoer(s) and recover the funds. The Third Party is the only practical source of information from which I can ascertain the identity of the holder of the bank accounts connected to the Contex Account [ie the D’s Account]. As such, the Discovery Order sought will or will very likely reap substantial and worthwhile benefits for the Plaintiff, to enable it to investigate the passage of monies in and out of the receiving accounts to aid tracing and proprietary claims.”

Procedural history of the Application

24.  The Summons and the Affirmation were served to the defendant and the third party by leaving the same at their respective registered office addresses on 31 July 2019. 

25.  By a letter dated 31 July 2019, the third party confirmed that it was not the third party’s intention to contest the Application and that the third party would comply with any court orders which were served on it.  The third party further confirmed that it was not the third party’s intention to attend the hearing for the Application.  

26.  The Summons was first returned before me on 7 August 2019.  Both the defendant and the third party did not attend the said hearing.  The plaintiff was represented by Mr Tam of counsel at the hearing. 

27.  Mr Tam submitted his skeleton submissions for the plaintiff dated 5 August 2019 (the “Submissions”). 

28.  Mr Tam submitted in the Submissions that:

“4. The Discovery Order [sought in the Application] is sought to:

4.1 Facilitate P’s efforts to locate, trace, and preserve the Sum and their fruits or proceeds, which have been transferred into and subsequently out of the HSBC Account [ie the D’s Account].

4.2 Identify the wrongdoer(s) involved, so that appropriate relief (including orders for further discovery if necessary) can be sought as soon as possible against the appropriate parties.”

29.  Mr Tam referred to the Peruvian Guano principles and the court’s discretion in support of the Application.

30.  Mr Tam further submitted in the Submissions that:

“13. … … the Discovery Order is necessary for disposing fairly of the matter between P and D and other wrongdoer(s).

13.1 P will obtain concrete indication of where the Sum and/or their fruits or proceeds (including if parts of them are in D’s Account). P will be able to take steps to trace and preserve money and assets, including the Sum and other proceeds.

13.2 This information will allow P to bring further proceedings against recipients of the Sum and any relevant wrongdoer(s) other than D, whether in Hong Kong or otherwise.”

31.  Mr Tam concluded in the Submissions that “the Discovery Order is necessary, proportionate, and just for fairly disposing of the matter in the main action.” 

32.  I raised at the said hearing my concern on what was the issue arising out of the plaintiff’s claim herein when the defendant did not defend or dispute the plaintiff’s claim.  I also had concern as to whether Masters had jurisdiction to grant the Restrain Order which in my view was in the nature of an injunction. 

33.  I adjourned hearing of the Application to 12 August 2019 to allow an opportunity for Mr Tam to produce authorities to address my aforesaid concerns. 

34.  During the adjournment, Mr Tam submitted the supplemental skeleton submissions for the plaintiff dated 9 August 2019 (the “Supplemental Submissions”). 

35.  Mr Tam referred to Waddington Ltd v Chan Chun Hoo Thomas and Others (unrep., HCA 3291/20113, DHCJ Lok (as he then was), 7 May 2013) when his Lordship set out in para 13 of the judgment the principles for third-party discovery under section 42 of the Ordinance and order 24 rule 7A of the RHC as follows: 

“(i) it must be shown that the non-party is likely to have the documents in his possession, custody or power which are relevant to an issue arising out of a claim;

(ii) the test of relevance is the Peruvian Guano test;

(iii) it must be shown that the order must be necessary either for disposing fairly of the matters or for saving costs;

(iv) the order sought must identify with precision the document, documents or categories of documents which are required to be disclosed;

(v) even if satisfied with the above, the court still has to exercise its discretion, bearing in mind that disclosure orders against third parties are exceptional. It should not be used as a fishing exercise for documents nor speculative. It should not be oppressive to the witness, e.g. by the terms being too wide. It must identify the documents by means of a particular description and not a general description;

(vi) it will be oppressive if the order requires the third party to make fine judgments regarding the relevance of the documents; or if it requires him to undertake a search of an excessively large amount of documents; or if it does not specify the documents with reasonable particularity; and

(vii) the court may also in its discretion refuse to order disclosure of documents which are confidential.”

36.  Mr Tam contended that it was for the party objecting to the order for discovery to satisfy the court that discovery was not necessary.  He referred to the defendant being absent having defaulted in filing an acknowledgment of service and the third party not objecting to the Application. 

37.  Mr Tam submitted that the fact that the communication covered by the Application might be confidential was no bar to the Application especially when there was fraud. 

38.  Mr Tam further submitted that the plaintiff in this case sought a proprietary claim against the defendant over the Sum and its traceable proceeds.  He relied on Pacific King Shipping Holdings Pte Ltd (in Compulsory Liquidation) (A Company Incorporated in Singapore) v Huang Ziqiang [2015] 1 HKLRD 830 to submit that where the claim was a proprietary one, the court might order a third party bank to give discovery of documents in relation to the bank account of a defendant who was alleged to have defrauded the plaintiff of his assets. 

39.  Mr Tam submitted in the Supplemental Submissions that:

“14. The Sum and other funds have already been moved out of D’s Account. It is for this very reason that the Discovery Order is necessary for fairly disposing of the cause or matter.

14.1 The fact that the present case between P and D can be dealt with by way of a default judgment without dispute as to the factual issue does not mean that discovery is not necessary.

14.2 The test is one of necessity of resolving an “issue”, not a “dispute”.

14.3 P will likely be left with an empty judgment since it still cannot assert its own proprietary claim against the subsequent recipients.

14.4 This is the very antithesis of a fair disposal of the matter if P cannot be allowed to seek discovery to recover its losses. Recovery of the Sum is a vital issue for P which arises from P’s claim and/or proceedings.” (Original underlining)

40.  Mr Tam further submitted that the plaintiff sought a declaration that the Sum and its traceable proceeds belonged to the plaintiff.  He contended that “the Discovery Order” sought by the Application would show that monies had been transferred out of the D’s Account, thus necessitating the declaratory relief.  He further contended that “the Discovery Order” was also necessary in underpinning the effectiveness of the declaratory relief sought by the plaintiff in this action.  

41.  Mr Tam submitted that the Restrain Order sought in the Application was not an injunctive relief.  He referred to para 24/2/9 of Hong Kong Civil Procedure 2019 to contend that the Restrain Order sought was only part and parcel of the usual duty in the course of litigation and discovery not to actively destroy evidence.  He submitted that there was no conflict in pursuing the Restrain Order and maintaining the jurisdiction of a Master to deal with the Application. 

42.  Mr Tam further submitted that the scope of documents and the categories of documents sought in the Application were appropriate and proportionate. 

43.  Mr Tam concluded in para 24 of the Supplemental Submissions that: “As HSBC [ie the third party] does not have any objections, it must be fair to P to grant the Discovery Order in order to exercise its proprietary claim to the subsequent recipients, thereby fulfilling the condition under Order 24 rule 8(2) [of the RHC].” 

Discussion

44.  Application under section 42(1) of the Ordinance is governed by order 24 rule 7A(2) of the RHC.  The three prerequisites for discovery, ie relevance, existence and possession of the documents, also apply to an application under order 24 rule 7A(2) of the RHC. Such application is further subjected to the principles for non-party discovery set out by DHCJ Lok (as he then was) in the Waddington Ltd case (supra).

45.  I have no problem with the issues of existence and possession of the documents concerned.  I accept that those documents are in existence and that the third party has possession of the documents.  The remaining issue is “relevance”. 

46.  Mr Tam did not seek to dispute that for non-party discovery under section 42(1) of the Ordinance and order 24 rule 7A(2) of the RHC, the documents sought to be discovered have to be “relevant to an issue arising or likely to arise in the proceedings”. 

47.  As pointed out in the Waddington Ltd case (supra) whether a document is relevant is to be determined by the Peruvian Guano test.  But, relevant to what?  The answer is found in order 24 rule 7A(3)(b) of the RHC.  It has to be relevant to “an issue arising or likely to arise in the proceedings” and “by reference to any pleading served or intended to be served in the proceedings”. 

48.  In the absence of any defence or dispute from the defendant in this action, what is/are the issue(s) arising or likely to arise in this action? 

49.  Mr Tam submitted that matters raised in the plaintiff’s claim were issues arising or likely to arise in this action.  He contended that it was not necessary for the matters to be disputed in order to become “issues” in an action. 

50.  Litigation is a process for the court to adjudicate on disputes between the parties.  By adjudicating the relevant matters in dispute, the court adjudicates the parties’ disputes in the litigation.  Discovery is a litigation tool assisting the parties and the court to discharge the function of the court in litigation.  As pointed out in order 1A rule 2(2) of the RHC, “the Court shall always recognize that the primary aim in exercising the power of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.” (Emphasis added)  I am of the view that an issue arising out of a claim or action refers to an issue which (1) requires adjudication in the proceedings by the court; and (2) is relevant to the plaintiff’s claims.  An issue arising out of a claim is not simply any matter referred to in the pleading by a party.  It has to be matter which the court has to make a finding in order to determine whether the relief sought will be granted to the plaintiff.

51.  The plaintiff’s claims for declaratory relief are (1) a declaration that the Sum and its traceable proceeds at all times remains the plaintiff’s property and was received and held by the defendant as the plaintiff’s trustee; and (2) a declaration that the defendant has been unjustly enriched in that Sum.  Does the court have to make a finding on the whereabouts of the Sum before the court may grant the declaratory relief sought in this action?

52.  Mr Tam submitted that the rule of the court was not to grant declaratory judgment even in default.  As such, the plaintiff still had to prove its case even in the absence of defence from the defendant.  Mr Tam rightly pointed out that the aforesaid rule of the court “is a rule of practice and not of law and will give way to the paramount duty of the court to do the fullest justice to the plaintiff to which he is entitled.” (See para 15/16/2 of Hong Kong Civil Procedure 2019)  Mr Tam referred to Lai Wai Kuen v Wong Shau Kwong [2004] 4 HKC 528 and Spruce Australia Pty Ltd v New Senjia Trade Limited[2019] HKCFI 101 when declaratory relief were granted in default of defence.  Mr Tam contended that the documents sought in the Application were required for the plaintiff to prove the merits of its case to justify the court granting the declaratory relief sought in default of defence. 

53.  I agree that in order to obtain declaratory relief in default of defence, the plaintiff has to satisfy the court that the plaintiff has a genuine need for the declaratory relief sought and that the court can properly grant it on the merits of the plaintiff’s case.  However, I do not agree that the documents sought in the Application are necessary for the plaintiff to obtain the declaratory relief sought in this action. 

54.  In the Spruce Australia case (supra), the court was dealing with a situation very similar to this action.  It was an application for judgment in default of Notice of Intention to Defend and Defence.  Spruce Australia Pty Ltd (the plaintiff therein) sought monetary judgment and certain declaratory relief to hopefully enable it to have access to the balance in the bank account of New Senjia Trade Limited (the defendant therein).  DHCJ Keith Yeung SC (as he then was) described that case as “a case of email/impersonation fraud.” (para 2 of the judgment)  Para 5 of the judgment set out the claims of Spruce Australia Pty Ltd as follows:

“… … The claim is based inter alia upon fraud, money had and received, and unjust enrichment. The plaintiff seeks inter alia return of the Sum, an injunction restraining removal or disposal of the same, a Declaration that the Sum at all times remains the plaintiff’s property and was received and held by the defendant as its constructive trustee.”

55.  His Lordship granted the declaratory relief sought on the grounds that:

“I take into account the fact that fraud is pleaded and deemed established. I take further into account the fact that nothing is known about the defendant, including whether it has any other creditors. The plaintiff has a genuine need for the Declarations sought, so as to avert any need for it to race against other creditors. The Declaration sought are also necessary for the plaintiff to hopefully get to the balance in D’s A/C for full or partial satisfaction of the monetary judgment. In all the circumstances, I am satisfied that the facts of the present case are such that I should exercise my discretion in favour of granting the declaratory relief sought.” (Para 16 of the judgment)

56.  The first declaration sought by the plaintiff is “a declaration that the Sum and its traceable proceeds at all material times remains the Plaintiff’s property and was received and held by the Defendant as its constructive trustee.”  Whether the plaintiff may obtain such declaratory relief depends on how the Sum was paid to or received by the defendant.  The documents sought in the Application relate to the disposal of the Sum.  The manner of disposal of the Sum is irrelevant to whether the plaintiff is entitled to the declaratory relief.  Whether the Sum is still sitting in the D’s Account or has been transferred to other accounts will not affect the plaintiff’s legal entitlement to the aforesaid declaratory relief. 

57.  The plaintiff’s case and claims herein are similar to that of the Spruce Australia case (supra) except that the plaintiff has not applied for any injunction in this action.  As can be seen from the Spruce Australia case (supra), the disposal of the monies concerned was not a factor which the court had considered in deciding whether the court would exercise its discretion to grant the declaratory relief sought.

58.  I do not see how “documents relating to all bank accounts and connected with the defendant” (ie documents sought in para 1 of the Summons) can assist the plaintiff to advance its case in the Peruvian Guano sense for the aforesaid declaratory relief. 

59.  The same applies to documents sought in para 2 of the Summons which are:

(a)   documents relating to payment into and out of the D’s Account;

(b)   documents relating to the source and destination of all payments into and out of the D’s Account;

(c)   documents relating to the person or persons giving instructions for all transactions on the D’s Account;

(d)   documents relating to the identity of persons authorized to give instructions on behalf of the defendant; and

(e)   documents relating to the opening of the D’s Account and the mandates.  

60.  Mr Tam submitted that “the Discovery Order is also necessary in underpinning the effectiveness of the declaratory relief which P is entitled to seek and does seek in the present case.” (Para 15.7 of the Supplemental Submissions)  

61.  I agree that the aforesaid documents sought in the Application are likely to be relevant when the plaintiff seeks to enforce the declaratory judgment sought but they are not relevant to the merits of the plaintiff’s claim for declaratory relief.  This is not an application in the context of Mareva injunction in a proprietary claim when the court is concerning with preservation of the assets concerned.  It is too early to consider documents required for enforcement of a judgment before the judgment has been obtained.  Issues which may arise in subsequent enforcement proceedings are not the same as issues for the claim proceedings.  We are not in the stage of enforcement proceedings yet. 

62.  The second declaration sought by the plaintiff in this action is “a declaration that the Defendant has been unjustly enriched in that Sum.”  I can hardly see any relevancy of the documents sought in the Application to this declaratory relief sought.

63.  Other relief sought by the plaintiff in this action are money had and received, damages, interest and costs.  All of these have nothing to do with the documents sought in the Application. 

64.  Mr Tam referred to para 24/8/1 of Hong Kong Civil Procedure 2019 and Liu Hing Sang Estate of Li Kwan, Decesaed and Another (31 August 2012, HCPI 665/2009) to submit that it was for the party objecting to the order for discovery to satisfy the court that the discovery was not necessary. 

65.  Para 24/8/1 of Hong Kong Civil Procedure 2019 read as follows:

“Under this rule, in contrast to r.13, it is for the party objecting to the order for discovery rr.3 or 7 to satisfy the court that the discovery is not necessary, or not necessary at the stage the cause or matter has reached … …”

66.  It can be seen that the aforesaid passage was discussing application under rules 3 and 7 of order 24 of the RHC in the context of order 24 rule 8(1) of the RHC.  For application under section 42(1) of the Ordinance, the relevant rule is order 24 rule 8(2) of the RHC which provides that “unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs”, no order for the disclosure of documents shall be made under section 42 of the Ordinance.

67.  Similar requirements are imposed in order 24 rule 13 of the RHC for order for production of documents.  Para 24/13/1 of Hong Kong Civil Procedure 2019 remarked that:

“Under this rule, in contrast to r.8 [which shall mean the pre-CJR version of order 24 rule 8 of the RHC], it is for the party applying for the order for production to satisfy the court that the order for production and inspection is necessary either for disposing fairly of the case or matter, or for saving costs (Vo Thi Do v Director of Immigration [1998] 1 HKLRD 729; Alick Au Shui Yuen v Sir David Ford, Deputy to the Governor, (unrep., HCMP 2827/1990, [1990] HKLY 839); Parasram v Kuscene Development Ltd [1991] 2 HKLR 587; Dynamic Way International Ltd v Ho Kui Chee [2000] 4 HKC 138; Dolling-Baker v Merrett [1991] 2 All ER 890). In requiring the court to consider the necessity of an order for the production of a document for the fair disposal of a cause or matter, O.24 r.13 confers a broad discretion rather than a narrow or fettered discretion (Moulin Global Eyecare Holdings Ltd (in Liq) v Olivia Lee Sin Mei [2013] 3 HKLRD 72). It is not enough for the applicant to show that the documents are relevant; he must also show that their production and inspection is necessary for one or more of the purposes mentioned in the rule (ibid.). The court will use the issues as identified by the parties in the pleadings and other related documents to determine whether production are necessary either to dispose fairly of the cause or matter or to save costs.”

68.  As pointed out in the Waddington Ltd case (supra), “it must be shown that the order must be necessary either for disposing fairly of the matters or for saving costs.” (Emphasis added) (See para 35 above)  It is for the plaintiff, being the applicant of the non-party discovery application, to show that the order sought under the Application “is necessary either for disposing fairly of the cause or matter or for saving costs” of this action. 

69.  In the Liu Hing Sang Estate case (supra), when discussing the power of the court to order non-party discovery under order 24 rule 8(2) of the RHC, the court after noting that “no order for disclosure of documents shall be made under section 42 of the HCO [ie the Ordinance] unless the court is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs”, referred to para 24/8/1 of Hong Kong Civil Procedure 2012 and stated that: “It is for the party objecting to the order for discovery to satisfy the court that the discovery is not necessary or not necessary at the stage the cause or matter has reached”. (Para 50 of the judgment) 

70.  However, para 24/8/1A of Hong Kong Civil Procedure 2019 noted that:

“Note – Rule 8(2) was added by the CJR and is confined to applications under r.7A. In an application for specific discovery under r.7, the burden lies on the party resisting discovery to show that discovery is not so necessary, whereas in the case of pre-action discovery under r.7A, the onus is reversed. (Zhang Shouen v Standard Chartered Bank (Hong Kong) Ltd (unrep., HCMP 682/2015, [2015] HKEC 2170))”

71.  In the Zhang Shouen case (supra), G Lam J when considering a pre-action discovery under order 24 rule 7A(1) of the RHC stated that:

“31. The second difference [between specific discovery pursuant to rule 7 of order 24 of the RHC and pre-action discovery pursuant to section 41 of the Ordinance and rule 7A of order 24 of the RHC] is that in an application for specific discovery, rule 8(1) [of order 24 of the RHC] means that no order for discovery will be made if discovery is not necessary either for disposing fairly of the cause or matter or for saving costs. The burden lies on the party resisting discovery (as opposed to production) to show that discovery is not necessary: Innovisions Ltd v Chan Sing Chuk & ors [1992] 1 HKC 348, 351.

32. In the case of pre-action discovery, the onus is reversed. Order 24 rule 8(2) [of the HCR] provides that no order is to be made under s.41 [of the Ordinance] “unless the Court is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs”. This clause, found also in rule 13(1) which concerns the production of documents generally, places the burden squarely on the applicant to satisfy the court that the order is necessary in the manner described, not only that the document is relevant or that discovery is desirable: In re Au Shui-yuen Alick [1991] 1 HKLRD 525, 531; Dolling-Baker v Merrett [1990] 1 WLR 1205, 1209.”

72.  Since order 24 rule 8(2) of the RHC covers application under both sections 41 and 42 of the Ordinance, I am of the view that the observation of the court in the Zhang Shouen case (supra) for application under section 41 of the Ordinance equally applies to the Application.  Order 24 rule 8(2) of the RHC is engaged for the Application being an application under section 42 of the Ordinance and the burden is on the plaintiff to satisfy the court that the discovery order sought is necessary either for disposing fairly of the cause or matter or for saving costs of these proceedings.  I am not so satisfied.

73.  In the premise, I am of the view that the Application is not covered by section 42(1) of the Ordinance and order 24 rule 7A(2) of the RHC.  I am also not satisfied that the order sought in the Application is necessary at the stage the cause or matter has reached either for disposing fairly of the cause or matter or for saving costs. 

The Restrain Order

74.  The plaintiff also applies for the Restrain Order in the following terms:

“Upon the compliance by the Third Party with paragraphs 1 to 4 hereabove [ie discovery of documents sought] or until further order, the Third Party (whether by itself, its directors, officers, employees, servants or agents or any of them or otherwise howsoever) be restrained from parting with possession of or destroying or mutilating or amending or deleting or removing any of the documents referred to [in] paragraphs 1 to 4 hereabove.” (Para 5 of the Summons)

75.  I am of the view that the Restrain Order sought is injunctive in nature.  Mr Tam submitted the otherwise. 

76.  Mr Tam submitted that there was no injunction involved in the Application and the plaintiff did not seek any injunctive relief.  He contended that the substance of the order sought as set out in para 74 above was not an injunctive relief.  It was only part and parcel of the usual duty in the course of litigation and discovery not to actively destroy evidence.  He referred to para 24/2/9 of Hong Kong Civil Procedure 2019. 

77.  Para 24/2/9 of Hong Kong Civil Procedure 2019 read as follows:

“It is necessary for solicitors to take positive steps to ensure that their clients appreciate at an early stage of the litigation, promptly after the writ is issued if not sooner, not only the duty of discovery and its width but also the importance of not destroying documents which might possibly have to be disclosed (Guess? Inc v Lee Seck Mon [1989] 1 HKLR 399, CA, at 404E-F; Rockwell Machine Tool Co Ltd v E P Barrus (Concessionaires) Ltd [1968] 2 All ER 98).”

78.  The above passage was discussing the duties of a party to a litigation.  The third party is a non-party.  Mr Tam produced no authority showing that such duty extended to non-party. 

79.  The Restrain Order sought is in the nature of an order for detention, custody or preservation of property. Such application is governed by order 29 rule 2 of the RHC.  Order 32 rule 11(1) of the RHC provides that Masters do not have jurisdiction to grant such order unless it is in the terms agreed by the parties to the proceedings in which the order is sought. 

80.  The Application is not an application under order 29 rule 2 of the RHC.  This is an application under section 42(1) of the Ordinance and order 24 rule 7A(2) of the RHC but neither section 42(1) of the Ordinance nor order 24 rule 7A(2) of the RHC empowers the court to make an order in terms of the Restrain Order against a non-party. 

Other matters

81.  Mr Tam referred to the Pacific King Shipping case (supra) when the Court of Appeal held that discovery order might be granted in aid of a Mareva injunction where the plaintiff’s claim was proprietary in nature.  Mr Tam submitted that the plaintiff’s claim in this action was also proprietary in nature.  As such, it was appropriate for the court to grant the Application in favour of the plaintiff. 

82.  The discovery application in the Pacific King Shipping case was an application in the context of a Mareva injunction.  It was not an application under section 42(1) of the Ordinance but an application under section 21 of the Evidence Ordinance (Cap 8) and an application invoking the court’s discretion in granting disclosure in aid of a Mareva injunction. 

83.  When the non-party disclosure order was granted in the Pacific King Shipping case in the Court of First Instance (unrep., HCMP 2464/2012, 4 April 2014, Zervos J), the learned Judge stated that:

“51 It is well established that in order to make a freezing injunction effective and to ensure the judicial processes are not defeated, the court has a discretion to order the defendant to make a statement of his assets and to give discovery of documents for the purpose of ascertaining the existence, nature and location of assets. The defendant relies on Arab Monetary Fund v Hashim and Ors (No 5) [1992] 2 All ER 911 to resist the disclosure order but in my view it does not assist him. In that case, it was held that a plaintiff who sought an order for discovery against a person who was not a party to the action had to demonstrate a real prospect that the information sought might lead to the location or preservation of assets to which the plaintiff was making a proprietary claim. I am satisfied that the conditions as required are met in this case in that there is a real prospect that the information sought will lead to the location and preservation of assets which are the subject of the substantive proceedings … …” (footnotes to the judgment not included)

84.  Zervos J specifically pointed out in para 52 of the judgment that: “The plaintiff’s application is made in order to preserve assets or realistically lead to the discovery of assets covered by the freezing injunctive order.”

85.  No Mareva injunction has been applied for or obtained by the plaintiff in this action.  The Application is not for the purpose of preservation of the subject of these proceedings.  The Pacific King Shipping case does not assist the plaintiff in the Application. 

Conclusion

86.  For the reasons set out above, I dismissed the Application at the hearing on 12 August 2019. 

87.  Both the defendant and the third party had not attended the hearings for the Application.  There was no application for costs from the defendant or the third party.  As such, I made no order as to costs for the Application at the aforesaid hearing.